Supply Management Integration for Competitive Advantage Chapter 4 CENGAGE LEARNING Monczka – Handfield – Giunipero – Patterson

Purchasing & Supply Chain Management, 4e Chapter Overview Internal integration External integration The critical role of cross-functional sourcing teams Integrating supply management, engineering, and suppliers to develop new products and services Managing risk in the supply chain Purchasing & Supply Chain Management, 4e

Supply Integration Defined Professionally managing suppliers and developing close working relationships with different internal groups. Theme: Become more closely integrated Develop capabilities Improve competitive performance Purchasing & Supply Chain Management, 4e

Elements of Supply Integration People are coming together to work on a common problem Different people bring different points of view to the table Team members are often located all over the globe There is a need to develop a common understanding of the end goal Purchasing & Supply Chain Management, 4e

Relationship Management Skills Ability to: Act ethically Listen effectively Communicate Use creative problem-solving Drive relationships Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Relationship Inputs Information About markets About plans and requirements Knowledge and expertise Product/service knowledge and technology Process knowledge and understanding “how to make it work” Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Relationship Inputs Business advantages Favorable cost structures Economies of scale Different perspectives “Fresh eyes” approach Synergy Purchasing & Supply Chain Management, 4e

How to Achieve Integration Cross-functional teams Information systems Integrated performance objectives and measures Process-focused organizations Co-location of suppliers and customers Buyer or supplier councils Steering committee Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Internal Linkages Consists of many communication flows increasing exponentially Need to reach agreement Issue of global outsourcing of internal functions and activities Identifying global requirements for success Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Operations Traditional close relationship through direct support Development of a global operations strategy Sales and operations plan (S&OP) Often co-located Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Quality Assurance Increasing in importance Growing % of outsourced materials Supplier quality training and development Supplier process capability studies Joint corrective action planning Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Engineering One of the most important and challenging linkages Joint product and process development activities Co-opting engineers to work in supply management Looking for new technologies Ongoing and direct communication Purchasing & Supply Chain Management, 4e

Accounting and Finance Much communication activity is electronic Inbound materials Reconciliation of POs, invoices, and receiving documents Developing timely and accurate cost data Often basis for make-or-buy decisions Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Marketing and Sales Voice of the customer New product ideas Sales forecasts  production plans Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Legal Contractual issues Patent ownership of new technologies Intellectual property issues Product liability claims Antitrust issues Long term contracts with escape clauses Supplier nonconformance issues Purchasing & Supply Chain Management, 4e

Environmental Management Environmental management system ISO 14000 Hazardous waste handling and transportation Health issues Safety issues OSHA Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e External Integration Supply management is the face of the organization to its supply base Acts as liaison on multiple fronts Materials New technology Market information Services Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e External Linkages Suppliers Government Local communities Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Suppliers Primary commercial linkage Maintain open and continuous communication Supplier selection and management Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Government International countertrade issues Compliance with foreign laws regarding contracts and suppliers Negotiation with foreign governments Consult with appropriate agencies regarding regulatory compliance Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Local Communities Control of substantial budget which could affect local economies May affect certain social goals Ethics Purchasing & Supply Chain Management, 4e

Buyer-Supplier Collaboration One or a limited number of suppliers for each item or family of items A win-win approach to reward sharing Joint efforts to improve supplier performance Joint efforts to resolve disputes Purchasing & Supply Chain Management, 4e

Buyer-Supplier Collaboration Open exchange of information Credible commitment to work together during difficult times Commitment to high quality, defect-free, and manufacturable products that supplier’s process is capable of producing Purchasing & Supply Chain Management, 4e

Advantages of Closer Relations Trust Not take advantage of each other Share sensitive data Early supplier involvement Long-term contracts Incentive for supplier investment in new plant and equipment Joint development of new technology, risk-sharing, and supplier capabilities Purchasing & Supply Chain Management, 4e

Obstacles to Closer Relationships Confidentiality Limited interest by suppliers Legal barriers (antitrust) Resistance to change Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Effective SRM Start with how a firm interacts with itself Where are the functional silos? Who are the key decision-makers? Resolve internal conflicts between stakeholders before trying to change or refocus externally Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Effective SRM Supply management should be key point of contact to make or deliver on supplier commitments Relationship management governance needs relationship managers Multiyear, long horizon Key performance indicators (KPIs) Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e SRM Skills Different stages of SRM require different skill sets Recruit from the business Monitor internal and external shifts Establish mechanisms to facilitate readjustment in roles, metrics, and project deliverables Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e SRM Skills Schedule regular site-level supplier and stakeholder meetings Drive people to insight and commitment Be willing to remove people or directions that aren’t aligned with strategy Purchasing & Supply Chain Management, 4e

Cross-Functional Teams Consist of various internal functional areas and possibly suppliers Specific tasks Supplier selection Product design General tasks Reducing purchased item costs Improving quality Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Benefits of CFTs Reduced time to complete tasks Increased innovation Joint ownership of decisions Enhanced communication between functional areas Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Benefits of CFTs Realizing synergies Better identification and resolution of problems Need to build internal relationships Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Drawbacks of CFTs Does not guarantee success Team process loss Negative effects on individual members Poor team decisions Groupthink Artificial consensus Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e When to Form a CFT Facing a complex or large-scale business decision CFT is likely to make a better quality decision Assignment directly affects a firm’s competitive position No single function has sufficient resources Purchasing & Supply Chain Management, 4e

Questions Driving Use of CFTs Does our organization consider CFT planning issues when establishing sourcing teams? Does executive management practice subtle control over sourcing teams? Does our organization recognize and reward team member participation and team performance? Purchasing & Supply Chain Management, 4e

Questions Driving Use of CFTs Do we have the right individuals selected as sourcing team leaders? Do our sourcing teams effectively establish performance goals? Are key suppliers part of the sourcing team process? Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e CFT Planning Issues Selecting a task Meaningful? Selecting team members and leaders Training requirements Resource support Purchasing & Supply Chain Management, 4e

An Effective CFT Member Understands the team’s task Has task-relevant knowledge Has the time to commit to the CFT Has the ability to work with others in a group Can assume an organizational perspective in addition to a strict functional one Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Resource Support Supplier participation Required services and help from others Time availability Budgetary support Materials and supplies Purchasing & Supply Chain Management, 4e

Purchasing & Supply Chain Management, 4e Resource Support Team member task preparation Work environment Executive management commitment Job-related information Tools and equipment Purchasing & Supply Chain Management, 4e

Subtle Management Control Authorizing the creation of the sourcing team Selecting the team’s tasks Establishing broad objectives Selecting team leadership Requiring regular updates Conducting performance reviews Purchasing & Supply Chain Management, 4e

Recognition and Rewards Monetary bonuses and other one-time cash awards Executive recognition Non-monetary rewards Merit raises Purchasing & Supply Chain Management, 4e

Guidelines for Rewards Team membership should be a part of the individual’s performance review Management should assess each individual’s contribution to the team Purchasing & Supply Chain Management, 4e

Issues for Team Leaders Need to give more attention, training, and support to team leaders New set of basic team leadership skills required Advanced team leadership skills Too much structure may lead to team failure Purchasing & Supply Chain Management, 4e

Importance of Sourcing Team Goals Use as a basis for assessing team performance Provide a benchmark for assessing progress, providing feedback, and allocating performance awards Challenging goals vs. “easy” goals Purchasing & Supply Chain Management, 4e

Supplier Involvement on CFTs Are typically more effective Put forth more effort Higher quality of key information Supplier becomes a resource Fewer coordination problems Greater supplier contribution May need to also consider key customer involvement Purchasing & Supply Chain Management, 4e

Successful Supplier Integration Formalized process for selecting items Use of CFTs for supplier selection and integration Early supplier selection for design and volume work Supplier membership and team participation Direct cross-functional communication Purchasing & Supply Chain Management, 4e

Successful Supplier Integration Co-location of buyer and supplier personnel Formal trust development efforts Sharing of technology between buyer and supplier companies Joint education and training efforts Purchasing & Supply Chain Management, 4e

Risk Assessment Questions What is the likelihood that this supplier has the ability to bring the product to market? How does this risk assessment compare to other potential suppliers (if there are others)? Purchasing & Supply Chain Management, 4e

Risk Assessment Questions At what point are we willing to reverse this decision if we proceed? What are the criteria and measures for doing so? What is the contingency plan that takes effect in the event of reversing our decision? Purchasing & Supply Chain Management, 4e

Elements for Consideration Targets – is the supplier capable of hitting affordable targets regarding cost, quality, conductivity, weight, and other performance criteria? Timing – will the supplier be able to meet product introduction guidelines? Purchasing & Supply Chain Management, 4e

Elements for Consideration Ramp-up – will the supplier be able to increase capacity and production fast enough to meet our market share requirements? Innovation and technical – does the supplier have the required engineering expertise and physical facilities to develop an adequate design, manufacture it, and solve problems? Purchasing & Supply Chain Management, 4e

Elements for Consideration Training – do the supplier’s key personnel have the required training to start up required processes and debug them? Resource commitment – if the supplier is deficient in any of the above, is management willing to commit resources to remedy the problem? Purchasing & Supply Chain Management, 4e

Supplier Involvement in Design White box – supplier is given blueprints and told to make the product from them Gray box – supplier’s engineers work cooperatively with buyer’s engineers in joint design Black box – suppliers are provided functional specifications and create the design Purchasing & Supply Chain Management, 4e

Defining a Technology Roadmap Projected performance specifications for a class of products or processes An intention to integrate a new material or component Development of a product to meet customer requirements that is currently unavailable in the market Purchasing & Supply Chain Management, 4e

Defining a Technology Roadmap Integration of multiple complementary technologies that results in a radical new product Any combination of the above Purchasing & Supply Chain Management, 4e

Concerns with Supplier Integration Unwillingness of internal design personnel to relinquish responsibility Concerns over sharing proprietary information Lack of integrative business processes Lack of cultural alignment Purchasing & Supply Chain Management, 4e

Integration into Order Fulfillment Supplier suggestion programs Buyer-supplier improvement teams On-site supplier representatives Purchasing & Supply Chain Management, 4e

Supplier Suggestion Programs Assessment of the suggestion Feasibility Resources required Potential savings Go / no-go decision Feedback to supplier Purchasing & Supply Chain Management, 4e

Buyer-Supplier Improvement Teams Cost reduction Quality improvement Delivery improvement Process technology upgrades Reduction of order cycle times Purchasing & Supply Chain Management, 4e

Supplier Involvement Outcomes Greater satisfaction with the quality of information exchange Higher reliance on suppliers to directly support the team’s goals Fewer problems coordinating work activities Greater effort put forth on a team assignment Purchasing & Supply Chain Management, 4e

On-Site Supplier Representatives Waste management Printing services Spare parts and MRO inventories Computer equipment and software Office furniture Uniforms and protective equipment Process control equipment Production parts Transportation services Maintenance Purchasing & Supply Chain Management, 4e

Buyer’s Use of On-Site Supplier Reps Supply management Sales Engineering Transportation Purchasing & Supply Chain Management, 4e

On-Site Rep Benefits to Buyer Increased buyer-supplier coordination Supplier personnel work on-site Supply management staff increased Supplier performs some sourcing activities Purchasing & Supply Chain Management, 4e

On-Site Rep Benefits to Supplier Increased supplier insight to customer needs and access to new designs Daily interface with customer Increased supplier production efficiency Fewer schedule changes and surprises Reduced transaction costs Reduced inventory Purchasing & Supply Chain Management, 4e